The latest draft of the amended Labor Code as released in March 2012 (the Draft) has been submitted to the National Assembly (the legislative body of Vietnam) for the approval in the 3rd session of the XIIIth National Assembly, which is scheduled to convene on May 20, 2012. The draft law has gone though several versions and been circulated for public comments from various parties involved in the industrial relations.

The motivation for revising the Code seems to come primarily from a perception that, despite various amendments, the Code remains overprotective of employees, and is not facilitating a legal framework for developing the fair industrial relations for the country's current market economy. In response to the requirements of the fast-growing economy and the country's international integration, the argument has been made, the Vietnamese laws must be overhauled to create a more equal environment for both employers and employees, to reach a balance of interests among the stakeholders in industrial relations (employers, employees, and the Government), and to build a highly competitive market. Discrimination protections and leave provisions for employees are improved under the proposed Code as well.

The draft-amended Code has been prepared by the Ministry of Labor, War Invalids and Social Affairs (MOLISA), the primary regulatory authority for the labor market in Vietnam. Each province or city under the central authority has a Department of Labor, War Invalids and Social Affairs (DOLISA) which is responsible for regulating and supervising labor relations in that province or city.

Key proposed amendments to the Labor Code are discussed below.

Labor Contracts

The current Labor Code provides for three types of contracts:

indefinite term contracts that apply to a job with an indefinite termination date and that can be signed no more than two times with the same individual;

definite term contracts with a term of 12 to 36 months; and

seasonal contracts or fixed work contracts that apply to certain types of work with a term of less than 12 months or to those performance of work that can be completed within 12 months.

Under the Draft, the duration of the definite term labor contract will be from 12 months to 72 months instead of the maximum 36 months as it is now, so as to give more flexibility for the employers. The Draft also provides that where a labor contract expires and the employee continues to work, within a period of 30 days from the date of expiry of the contract, the two parties shall have to enter into a new labor contract. And where the two parties enter into a new labor contract with a definite term, they may only do so for one additional term and the maximum term of the two labor contracts (or an extension from the original one) shall be for 72 months only. Thus, under the new proposed law, if the duration of the first signed definite term labor contract is 72 months, then the second signed labor contract would be automatically treated as an indefinite term labor contract.

Salary During the Probationary Period

The salary to be paid for the employees during the probationary period will be revised to be at least 85% of the normal salary instead of 75% as currently stipulated under the Labor Code.

Restrictive Covenants on Business and Technological Secrets/Confidentiality Obligation

The existing Vietnamese labor laws do not have specific rules for restrictive covenants and enforcement thereof, except for some general provisions on protection of the business secrets of enterprises as set forth in the Labor Code. Such restrictive covenants as non-compete, non-solicitation or non-dealing are generally not enforceable under the laws of Vietnam now.

A significant change introduced under the Draft is that the NDA (non-disclosure agreement) or confidentiality undertaking will be recognized and enforceable for those employees who have access to know-how, business secrets of the company when he or she does the job. In particular, the employer and the employee may contractually agree on the labor contract or in its annex (or a separate NDA) on the scope and term for the employee's confidentiality undertaking / obligation, and on the damage if the employee is in breach of his or her confidentiality obligation.

Overtime Work

The Draft makes more specific and flexible the right to the employer to mobilize employees to work outside the normal working time if it is agreed by the employee.

There are two options provided under the Draft:

One is that the overtime work may not exceed 50% of the daily normal working hours; 30 hours per month; 200 hours per year or 300 hours per year in some special cases stipulated by the Government.

The second option is substantially the same, except that for special cases as regulated by the Government, the total overtime work per year will be capped at 360 hours instead of 300 hours.

Retrenchment

The Draft provides for clear definitions of structural and technological changes as a legitimate reason for retrenchment, and notably adds "economic reasons" for retrenchment. In addition, the Draft specifies the procedures for the employer to retrench the employees, and makes it clear that the retrenchment can be made by the employer without its being subject to the approval or the opinion of the trade union if a trade union is not yet established within the enterprise, provided that the employee representative at the enterprise must be consulted for the retrenchment.

Trade Unions

The existing labor laws mandate that the approval or opinion of the relevant trade union must be sought for in many circumstances such as: retrenchment; issuance of internal labor regulations; execution of collective labor agreements; and dealing with labor disciplines. However, in fact, not all enterprises (especially SMEs) have established trade unions, as such making it difficult for employers to deal with such requirements.

The Draft now introduces and provides for the role of the "employee representative" where the trade union has not been established or not available in the enterprise due to the failure of the condition provided under the Law on Trade Union. Thus, the employee representative must be consulted or his or her approval must be given (instead of the trade union) when the employer wants to deal with the above circumstances if there is not any trade union established at the enterprise.

Sexual Harassment

The current labor laws are silent on sexual harassment protections. The Draft now expressly stipulates that sexual harassment is one of the prohibited acts together with discriminatory acts on the basis of gender, race, social, class, marital status, belief, religion HIV infection, or disability/handicap. The employer is prohibited from engaging in or conducting any of these prohibited acts.

Labor Outsourcing

In response to the development of the labor market, labor outsourcing (or "labor sub-lease" as called under the Draft) will be allowed subject to obtaining a special license from the labor authority. It is considered under the Draft as a conditional business, i.e. the company providing labor outsourcing services must satisfy certain conditions (such as a security deposit) to be stipulated by the Government. Particularly, the Draft provides that the enterprise which is licensed to sub-lease labor shall have the right to sub-lease its employees to another enterprise under a labor outsourcing agreement to be entered into between the parties, and the employees seconded or outsourced remain the staff of the enterprise (service provider) providing the employees. The term of a labor outsourcing may not exceed 24 months.

Disciplinary Measures

The statute of limitation for dealing with violations of the labor disciplines shall be 6 months from the date on which the breach occurs. For any breach relating to finance, assets, disclosure of technological or business secrets, or intellectual property of the enterprise, it shall be 12 months.

It is noted that the Draft also adds to the types of employee behavior that allow the employer to institute a dismissal action against the employee. In addition to the behaviors listed under the existing Labor Code, the following also would be grounds for dismissing an employee: gambling, assault and any act causing injury, drug abuse inside the enterprise, and disclosure of intellectual property of the enterprise.

Industry-Level Collective Labor Agreements

The Draft introduces for the first time the mechanism of an "industry-level collective labor agreement" and the specific provisions on negotiation, execution and application of an industry-level collective labor agreement, for a particular industry.

Paid Leave Benefits

Employees would be entitled to 5 days (instead of 4 days currently) of paid leave for the Lunar New Year festival (or "TET" in Vietnamese), including the last day of the old Lunar Year and the first 4 days of the new Lunar New Year.

For maternity leave, female employees will be entitled to a longer leave. The standard maternity leave under the existing Labor Code is four months only. There are two options under the Draft:

One is that a female employee shall be entitled to five months' leave for giving birth in normal working condition, and six months' leave for giving birth in some special working conditions.

The other option is that a flat 6 months' leave would be given for giving birth without distinction of working conditions.

Another new point is that a male employee would for the first time be eligible to apply for a paid paternity leave of two working days on the occasion of the birth of a child.

Term of Work Permits for Expatriates Working in Vietnam

Currently1 all foreigners working in Vietnam, with certain exceptions, are subject to a work permit. Work permits are issued by DOLISA, with the term equal to the term of the labor contract but not exceeding 36 months in any case. The Draft now would reduce the maximum term of the work permit to 12 months.

Background on the Labor Code

The Labor Code of Vietnam, which was passed by the National Assembly on June 23, 1994, came into effect January 1, 1995, and was amended several times in 2002, 2006, and 2007 (the Code). Together with its implementing regulations (including government decrees and circulars) the Code creates a uniform legal framework on employment. It covers various employment issues such as, the form of contracts, terms of employment, probationary periods, minimum salary, working hours and rest breaks, overtime, annual and other statutory leave entitlements, special benefits for female employees, social and health insurance contributions, internal labor regulations, collective labor agreements, safety and hygiene, etc.

The Code applies to both Vietnamese and expatriates working for an individual or organization operating in Vietnam and sets out generally the rights and obligations of both employers and employees. Many changes have been made to the Code over the years as a result of both the opening of Vietnam's economy and the fast growth of the private and foreign investment sectors in the country. The employment laws in Vietnam are strict and generally employee-oriented. The legislation contains very specific provisions on a wide range of matters that regulate the employment relationship between an employer and an employee.

1 Under the Labor Code and Decree 34/2008/ND-CP of March 25, 2008, as revised by Decree 46/2011/ND-CP of June 17, 2011.